EU rejects ‘reformed’ Energy Charter Treaty - ‘historic moment’ for climate action

November 25, 2022: The Council of the European Union late on November 18 failed to reach an agreement on the reforms to the controversial Energy Charter Treaty (ECT), in a moment hailed as historic by environmental lawyers. The ECT’s Investor-State Dispute Settlement (ISDS) provisions enable corporations to sue governments if they can argue that changes in law or policy reduce their profits, and there have been many cases by fossil fuel companies against regulation to reduce carbon emissions.

All 53 State Parties to the ECT were to meet on November 22 to adopt or reject the ‘modernised’ ECT, but instead the Europeans opposed having the modernisation on the agenda.

On November 24, the European Parliament called on the European Commission to propose the withdrawal of the EU from the ECT, and for the European Council to support this.

Germany, France, Spain, Netherlands, Poland, Slovenia and Luxemburg have announced their decision to withdraw from the ECT, Italy left the ECT in 2015, and other EU Member States are still considering the option of leaving the ECT.

Amandine Van Den Berghe, ClientEarth lawyer, said: “This is a historic moment in the fight to protect our planet from the fossil fuel giants whose business has been protected by the Energy Charter Treaty.

“This is a great victory, but not the end of the fight. Member states that have signalled their withdrawal, or those that have withdrawn [from the ECT], represent around 75% of the EU population: they should now pressure the Commission to urgently design a plan to leave the ECT and solve the current political and legal confusion.

“Neither the European Union nor the member states can adopt the new ECT, and they cannot remain a party to an agreement that fundamentally conflicts with EU law. The Commission is left with no choice but to propose a full EU withdrawal.

"Now Frans Timmermans is back from COP27, he must show leadership as Executive Vice-President of the Commission and do what is in the best interest of the EU’s unity and climate transition.”

ClientEarth lawyers said that the Commission must now facilitate and coordinate the departure with other member states and negotiate an internal agreement that neutralises the sunset clause – the 20-year extended effect of the ISDS provisions of the ECT.

Van Den Berghe added: “Other ECT members, such as the UK and Switzerland, must follow in the EU’s lead and quit the agreement. Staying in this outdated treaty will only make their transition harder, slower, and more expensive. The EU’s withdrawal is an opportunity for them to get out.

“The end of the ECT should be the beginning of a complete rethinking of EU’s investment policy – because yes, there are alternatives.”

Besides the ECT, there are still thousands of bilateral investment agreements with ISDS that can be used to stifle climate action.

The Australian Labor government has recently confirmed that it will exclude ISDS from all trade agreements and has a policy to negotiate to remove it from existing agreements.